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How a small lender sells charged-off loan accounts (without creating legal problems later)
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Short answer: A small lender sells charged-off accounts in six steps. Compare a sale with in-house or contingency collection. Scrub and segment the file. Build a data tape and documents. Get competing bids from licensed, vetted buyers. Sign a purchase agreement with clear buyback and compliance terms. Then update credit reporting and records. A sloppy sale can still come back on you.
What is your charged-off portfolio worth?
Free, confidential valuation. Summary data only, mutual NDA before any documents, and no obligation to sell.
Should you sell, keep collecting, or place on contingency?
There are three options. You can keep collecting in-house. You can place accounts with a contingency agency, where you keep ownership and pay a share of recoveries. Or you can sell outright, taking cash now while the buyer keeps all future recoveries. Estimate your net recoveries from keeping or placing (gross collections minus agency fees, staff time, legal costs and the time value of waiting), then compare that with the bids. A sale makes sense when the price beats that net present value, or when you want to exit, clean up the balance sheet, or stop servicing. Performing loans, early delinquencies and charge-offs are different products with different buyers, so do not mix them in one pool. See selling vs. contingency.
Which accounts should you remove before selling?
Segment by product, charge-off vintage, borrower state, balance band and collateral status. For title and auto loans, that means repossessed and sold, deficiency balance, or vehicle never recovered. Then remove or flag the accounts that the OCC's debt-sale guidance tells banks not to sell, or to handle with care. It is a useful checklist even if you are not a bank (OCC Bulletin 2014-37):
- Accounts in bankruptcy or discharged in bankruptcy.
- Deceased borrowers.
- Borrowers protected by the Servicemembers Civil Relief Act (DOJ SCRA resources).
- Accounts in litigation, in open dispute, or with fraud or identity-theft claims.
- Accounts already settled or paid.
- Accounts near or past the statute of limitations. Debt collectors may not sue or threaten to sue on time-barred consumer debt (12 CFR 1006.26).
What goes in the data tape and media file?
A typical data tape lists, for each account: account ID, original and charged-off balance, principal versus interest and fees, origination date, last payment date, charge-off date, borrower state, payment history summary, collateral details and prior placements. "Media" means the signed loan agreement, the charge-off statement, payment history and assignment documents. Buyers who sue or answer disputes need to prove the debt and their chain of title, so fully documented accounts are generally worth more. Share summary statistics and a masked sample first, and only under an NDA. Release full personal data only to the buyer you select, over a secure channel. Lenders have privacy and safeguarding duties under the Gramm-Leach-Bliley Act (15 U.S.C. § 6801) and state law.
How do you find and vet debt buyers?
Get competing bids from more than one buyer, either directly or through a broker or marketplace. If you use a broker, ask whether they buy the paper themselves or pass it along, and how they are paid. Then vet each buyer:
- Licensing: many states require debt buyers or collectors to be licensed or bonded. Colorado and Tennessee require collection licenses, and New Jersey requires a collection-agency bond (see our state pages).
- Compliance record: FDCPA, Regulation F, FCRA and state-law practices, regulatory actions and CFPB complaints.
- Financial strength: references and proof of funds.
- Collection practices: in-house or outsourced, how often they sue, and how they handle complaints.
- Resale: many sellers limit or ban resale.
What should the purchase agreement cover?
- Cut-off date, and forwarding of payments received after the sale.
- Accurate, limited representations and warranties.
- Putback or buyback rights (bankruptcy, deceased, paid, fraud) and their time window.
- Media requests: how long, how fast and at what cost.
- Compliance covenants, resale limits and indemnification.
- Data security, and return or destruction of data.
- Funding by wire at closing, before files transfer.
What do you do after closing?
- Credit reporting: update tradelines to show the account as sold or transferred so it is not reported twice. Furnishers have accuracy duties (12 CFR 1022.42; 15 U.S.C. § 1681s-2).
- Borrower notice: many sellers send a notice of transfer. Check your state's rules.
- Records: route post-sale calls and payments to the buyer and keep documents for disputes.
- Tax and accounting: ask your accountant how to book proceeds against amounts already charged off.
What price should you expect?
There is no single correct price. The most-cited public benchmark is the FTC's 2013 study: 4.0 cents per dollar on average, 7.9 cents for debt under three years old. Bids depend on age, documentation, state mix, balance size, collateral and prior placements. See the Debt Pricing Guide 2026, and let competitive bids set the number. If you will keep producing charge-offs, ask buyers about a forward-flow agreement (a set price for future accounts).
What is your charged-off portfolio worth?
Free, confidential valuation. Summary data only, mutual NDA before any documents, and no obligation to sell.
What else do sellers ask?
Can a small lender sell charged-off loans?
Yes. Lenders of any size can sell charged-off accounts to debt buyers. Vet buyers, scrub the file, and use a written purchase agreement.
Should a title or auto lender sell deficiency balances?
Often yes, once the vehicle is repossessed and sold. State repossession and deficiency rules add requirements, so involve counsel.
What is a forward-flow agreement?
A contract to sell future charge-offs to one buyer at a set price over a set period. It suits lenders with steady charge-off volume.
Do I have to notify borrowers when I sell their accounts?
Many sellers do, and state rules vary. The buyer, if it collects, must send its own validation information under Regulation F.
Where should you go next?
General information only, not legal, tax or accounting advice. Price figures are historical public benchmarks, not offers. Verify with counsel.